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Wednesday, February 12, 2003


Howard E. Clendenen and Howard E. Clendenen, Inc. are arguing over the effect of a Stipulation to be Bound after they lost s decision regarding whether or not the ESOP that the corp established for Mr. Clendenen was a qualified plan. The years at issue were 1987, 1988, and 1989. Mr. Clendenen argued that while the plan was disqualified for the taxable year ended June 30, 1986, the plan was qualified for all years ending thereafter. Tax Court ruled otherwise. With regards to 1987 and 1989 specifically, there were additions allocated to Mr. Clendenen that exceeded the section 415 limits. Further, Tax Court stated that when a plan is disqualified under section 415, the disqualification continues until remedial action is taken. Tax Court may be right about the law on that last point, but it seems unduly harsh. How was Mr. Clendenen, Inc. supposed to know he needed to take remedial action if it was going to take the government a decade and a half to rule on whether or not the plan was qualified?

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